Give Up, Throw Up or Stay the Course: What To Do When the Market Drops 20%June 25, 2014
Like death and taxes, bear markets are unavoidable. The only question is when? Next week, next month or several years from now?
Experienced advisors know that bear markets — defined as a market decline of 20% or more from peak to trough — happen frequently. Over the last 113 years, from 1900 – 2013, we’ve seen 32 bear markets, or 1 every 3.5 years, which last an average of 367 days.1
If we go by the calendar, we’ve seen six years since 1926 when the S&P 500 suffered losses of at least 20%.2
Bear markets are the price of long-term investing. But what can transform them from an annoying blip into a permanent loss is human behavior.
We recently took our camera to the streets to interview ordinary investors about what they’d do if the market suddenly tumbled 20%. As you’ll see from this brief video, there is a wide range of responses from blind panic to gastric distress to staying the course.
Click here for the video.
As the video asks at the end: What will you do when the next bear market happens?
Now, while the going is good, is the time to prepare yourself and your clients. Share this video with them. Have a conversation about risk and markets.
These kinds of proactive conversations can have a major impact on lowering client stress levels. In studies with rats, those given a warning before getting a small electrical shock experienced significantly diminished stress levels versus rats who received no warning.3
Staying ahead of bear markets with education, perspective and a focus on long-term goals can all make a real difference and help your clients weather whatever markets throw our way.
2 BTN Research
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